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With sales of high-speed USB modems growing at 700%, it looks as if mobile network operators may have underestimated the demand for computing on the move. Lucky them!

Recent reports have described mobile data as "a minority revenue stream for operators for a few years". But this understates the importance of mobile broadband via USB high-speed packet access (HSPA) modems or dongles to mobile operators.

In mature mobile markets such as western Europe, network operators' revenues from voice services have started to fall. There is little or no further growth in voice user penetration Ofcom says the UK is already at 120% market penetration. This comes at a time when regulators are pressing for lower mobile termination and roaming rates. These have so far offset any revenue gains from fixed to mobile voice substitution.

Consumer applications, whether delivered to mobile handsets or PCs, will be increasingly valuable for network operators. Handset applications are likely to increase the average revenue per mobile handset user, or at least offset the decline in average revenue per voice user.

Genuinely new

Mobile PC connectivity counts as a genuinely new application because it uses an extra SIM to connect to the network. In fact, UK research shows that many dongle users are substitutional users in other words, they reduce their use of other access devices, or do not have a fixed line at home.

To maintain their share prices, operators have to deliver profitable growth. For many European operators, the only source of revenue growth is mobile data, specifically HSPA. For other operators, including those in the US, most growth now comes from mobile data (see table below).

The UK was a bit behind in mobile PC but caught up this year. Growth was very strong (Ofcom says 700%), but operators do not break down the figures. 3 appears to have done best, followed by Vodafone. By mid-2008 around 3% to 3.5% of the UK population seemed to making use of mobile broadband, accessing the networks via USB dongles.

Mobile PC connectivity is part of the network operators' effort to squeeze revenue growth from mature markets. From a profit margin perspective, two factors make mobile PC connectivity attractive to them.

First, unlike voice traffic, there are no outpayments for interconnection the initiating network keeps the entire call fee.

Second, operators can now buy USB HSPA modems for less than £40. A big share of sales goes through direct channels such as websites and network-owned retail stores, resulting in a low cost of customer acquisition. And that is the reason why mobile PC subscriptions deliver a reasonable profit margin despite a lower average revenue per user than voice customers.

Most 3G networks have spare capacity on their airside networks. To support growth in mobile connectivity, network operators need to upgrade their backhaul (terrestrial) links. Innovative solutions such as ADSL make backhaul capacity available at an acceptable cost.

Act quickly

Incumbent operators should move quickly. They will likely face competition for the laptop market from new sources drawn in via the impending auction of new frequencies (700MHz, 2.6GHz, 2.5GHz, and so on). New entrant business plans - for example, for WiMax operators - rely significantly on mobile PC revenue. Those plans will look less compelling if the mobile PC market is already sewn up.

Lastly, people like packages. Mobile operators that do not support PC mobility risk losing valuable voice customers who will look elsewhere for a one-stop shop. When the operators factor this into their new investment appraisals, the return on investment in mobile broadband looks more attractive.

Data conveyance costs, as measured by £ per bit per Hertz, continue to fall with successive HSPA releases and the long-term evolution of mobile communications. In the medium to longer term, the most successful mobile companies will be those that operate the most efficient bit pipes. Economies of scale, such as having lots of mobile PC data customers, will be a significant factor in achieving this goal.

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